<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 1-12554
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A. --
BOLIVIAN POWER COMPANY LIMITED
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nova Scotia 13-2691133
---------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Av. Hernando Siles 5635
Obrajes, La Paz, Bolivia
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Bolivia) 591-2-782474
----------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On November 10, 1997, there
were 4,202,575 outstanding shares.
<PAGE>
TABLE OF CONTENTS
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1997 and
1996 (unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and
1996 (unaudited) 5
Notes to Interim Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II - Other Information
- ---------------------------
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
-------------------------
2
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(in U.S. Dollars)
(amounts in thousands, except share data)
(Unaudited)
---------
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
ASSETS
Utility plant
In service
Production $ 78,799 $ 60,082
Transmission 9,824 9,328
Construction work in progress 48,811 41,644
General Property 4,937 4,893
-------------- -------------
142,371 115,947
Less accumulated depreciation 39,067 36,770
-------------- -------------
Net utility plant 103,304 79,177
-------------- -------------
Current assets
Cash and cash equivalents 240 3,024
Temporary investments at fair market 13,433 57,028
value (includes restricted collateral
deposits of $6,246 in
1997 and $10,435 in 1996)
Accounts receivable, net 7,216 7,471
Materials and supplies 2,442 3,979
Prepaid expenses 1,206 1,048
-------------- -------------
Total current assets 24,537 72,550
-------------- -------------
Other assets 4,812 2,034
-------------- -------------
$132,653 $153,761
============== =============
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Common shares, without par value $ 55,247 $ 55,247
(13,066,803 authorized 4,202,575 issued
and outstanding)
Additional Capital 14,493 14,493
Unrealized loss on temporary (94) (173)
investments
Earnings reinvested 40,165 56,340
-------------- -------------
Total shareholders' equity 109,811 125,907
-------------- -------------
Provision for severance indemnities 3,396 3,126
Long-term debt 9,263 11,910
12,659 15,036
-------------- -------------
Current liabilities
Accounts payable 4,484 5,851
Current portion of long term debt 2,647 1,323
Other liabilities
Taxes on income 1,668 4,943
Other taxes 1,179 473
Other 205 228
-------------- -------------
Total current liabilities 10,183 12,818
-------------- -------------
Contingencies and commitments - -
-------------- -------------
Total Shareholders' Equity and Liabilities $132,653 $153,761
============== =============
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Three Months and Nine Months Ended September 30, 1997 and 1996
(in U.S. Dollars)
(amounts in thousands, except share and per share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30
1997 1996 1997 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues $ 4,674 $ 4,003 $ 15,850 $ 15,136
------------ ------------- ------------ ------------
Operating expenses
Operations 2,320 2,642 7,428 9,215
Maintenance 366 238 1,256 1,024
Depreciation 816 735 2,423 2,244
Taxes 170 145 578 579
Stock options compensation - 1,372 - 2,105
------------ ------------- ------------ ------------
Total operating expenses 3,672 5,132 11,685 15,167
------------ ------------- ------------ ------------
Operating income (loss) 1,002 (1,129) 4,165 (31)
------------ ------------- ------------ ------------
Other income
Sale of distribution - (15) - 16,369
subsidiaries
Interest capitalized 760 425 1,994 973
Other, principally 279 801 1,617 3,624
------------ ------------- ------------ ------------
interest income
Total other income 1,039 1,211 3,611 20,966
------------ ------------- ------------ ------------
Income before interest 82 7,776 20,935
and tax 2,041
Interest charges 360 378 1,097 1,168
------------ ------------- ------------ ------------
Income (loss) before taxes 1,681 (296) 6,679 19,767
Tax provision 416 157 1,841 3,836
------------ ------------- ------------ ------------
Net income (loss) $ 1,265 $ (453) $ 4,838 $ 15,931
=========== ============= ============ ============
Average common shares
outstanding 4,202,575 4,202,127 4,202,575 4,201,278
=========== ============= ============ ============
Earnings (loss) per common share $.30 $(.11) $ 1.15 $ 3.79
=========== ============= ============ ============
Dividends per common share $ - $ .20 $ 5.00 $ .60
=========== ============= ============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(In U.S. Dollars)
(amounts in thousands)
(Unaudited)
---------
-------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996
-----------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,838 $ 15,931
Adjustments to reconcile net income to
cash provided by (used in) operating
activities
Profit on sale of subsidiaries (net - (13,474)
of tax charge $2,895)
Depreciation 2,423 2,244
Provision for indemnities 491 435
Interest capitalized (1,994) (973)
Stock options compensation 2,105
Other - Net (2,698) (875)
Decrease (Increase) in accounts receivable 255 (4,013)
Decrease - (Increase) in materials and supplies 1,537 (1,361)
(Increase) Decrease in prepaid expenses (158) 258
(Decrease) in accounts payable (1,367) (2,741)
(Decrease) in taxes payable (2,569) (1,958)
(Decrease) - Increase in other liabilities (23) 64
Indemnities paid (221) (1,908)
----------------------- --------------------
Net cash provided
by (used in) operating activities 514 (6,266)
----------------------- --------------------
Cash flows from (used in) investing activities
Utility plant additions (25,400) (15,762)
Cash received from disposal of subsidiaries,
net of cash disposed 58,231
Net Decrease (Increase) in temporary
investments 43,595 (37,734)
Other-net 843 212
----------------------- --------------------
Net cash provided by investing
activities 19,038 4,947
----------------------- --------------------
Cash flows from (used in) financing activities
Payment of long-term debt (1,323)
Payment of dividends (21,013) (2,521)
----------------------- --------------------
Net cash (used in)
financing activities (22,336) (2,521)
----------------------- --------------------
Net (Decrease) in cash and cash equivalents (2,784) (3,840)
Cash and cash equivalents at beginning of period 3,024 8,137
----------------------- --------------------
Cash and carry equivalents at end of period $ 240 $ 4,297
======================= ====================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized) $ (897) $ (195)
Income tax $ 4,372 $ 3,776
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
COMPANIA BOLIVIANA DE ENERGIA ELECTRICA S.A.
BOLIVIAN POWER COMPANY LIMITED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. Dollars)
(Amounts in thousands, except share and per share data)
(Unaudited)
1. The unaudited Interim Consolidated Financial Statements, which reflect all
adjustments (consisting only of normal recurring items) that management believes
necessary to present fairly results of interim operations, should be read in
conjunction with the Notes to Consolidated Financial Statements (including the
summary of significant accounting policies) included in the Company's audited
Consolidated Financial Statements for the year ended December 31, 1996, which
are included in the Company's Form 10-K for such year (the "1996 10-K").
Results of operations for interim periods are not necessarily indicative of
annual results of operations. The Consolidated Balance Sheet at December 31,
1996 was extracted from the audited annual financial statements in the 1996 10-K
and does not include all disclosures required by generally accepted accounting
principles for annual financial statements.
2. In December 1996, NRG Energy Inc. and Nordic Power Invest A.B., together
through TOSLI Investments B.V. ("TOSLI"), a Netherlands limited liability
company, purchased 96.6% of the Company's common stock, pursuant to a cash
tender offer for all the outstanding shares of the Company at $43.00 per share.
The offer expired on December 18, 1996 and promptly thereafter TOSLI purchased
all of the shares that had been validly tendered and not withdrawn. As a result,
TOSLI acquired and now owns 4,060,732 or 96.6% of the Company's outstanding
shares.
3. The consolidated statement of income at September 30, 1996 includes a gain
of $16,369 arising from the sale of the sale of the Company's former
subsidiaries, Electricidad de La Paz S.A., Empresa de Luz y Fuerza Electrica de
Oruro S.A. and Compania Administradora de Empresas, to Iberdrola Investimentos
Sociedade Unipessoal, a Spanish electric utility, for an aggregate cash price of
$65,813. The sale of these subsidiaries was made in order to comply with the
Bolivian Electricity Law which was enacted in December 1994.
The after tax gain on the sale of the Company's distribution subsidiaries was
approximately $13,474, which had an effect on earnings per Common Share of
approximately $3.21.
4. As a result of the granting of options by Liberty Power/Cogentrix Bolivia,
Inc. -which owned 719,206 shares or 17.1% of the outstanding Common Stock of the
Company at September 30, 1996 - to three executive officers ("the Officers") of
the Company to purchase 431,532 shares owned by Liberty Power/Cogentrix Bolivia,
Inc., the Company recorded a charge to income of $1,372 or $.33 per share and
$2,105 or $.50 per share for the three and nine month periods ended September
30, 1996. These charges are nonrecurring, as in December 1996, pursuant to the
change of control of the Company - see note 2 above - the agreement for the
granting of stock options to the Officers was terminated as of December 18,
1996.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------ CONDITION AND RESULTS OF OPERATIONS
(in US Dollars)
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the 1996
10-K.
CHANGE OF CONTROL
In December 1996, wholly-owned subsidiaries of NRG Energy Inc. and Nordic Power
Invest A.B., together through TOSLI Investment B.V. ("TOSLI"), a Netherlands
limited liability company, purchased 96.6% of the Company's common stock,
pursuant to a cash tender offer for all the outstanding shares of the Company at
$43.00 per share.
The offer expired on December 18, 1996 and promptly thereafter TOSLI purchased
all of the shares that had been validly tendered and not withdrawn. As a result,
TOSLI acquired and now owns 4,060,732 or 96.6% of the Company's outstanding
shares.
GENERAL
The Company operates its electric generation business under a 40-year concession
(the "Concession") from the Bolivian Government which was granted in 1990 and
subsequently amended in December 1994 and March 1995.
In December 1994, a new Electricity Law was enacted which required the Company
to separate its generation, transmission and distribution activities. In order
to comply with the new Electricity Law the Company formed a new subsidiary,
Electricidad de La Paz S.A. ("ELECTROPAZ"), which held the Company's La Paz
Division distribution assets and which was divested, together with two other
Company subsidiaries, Empresa de Luz y Fuerza Electrica de Oruro S.A ("ELF") and
Compania Administradora de Empresas ("CADE"), on January 11, 1996. See "Sale of
Distribution Subsidiaries" below.
On February 2, 1995, a 40 year distribution concession (the "Distribution
Concession") for the cities of La Paz and El Alto and surrounding areas was
granted to the Company by a Supreme Resolution of the Bolivian Government.
Pursuant to the provisions of the Distribution Concession, the Company
transferred the Distribution Concession to ELECTROPAZ in December 1995.
The Company has entered into an Electricity Supply Contract with ELECTROPAZ
dated June 6, 1995 which, as amended, provides that the Company shall sell to
ELECTROPAZ, and ELECTROPAZ shall purchase from the Company, all of the
electricity that the Company can supply, up to the maximum amount of the
electricity required by ELECTROPAZ to supply the requirements of its concession
area. The Electricity Supply Contract expires in December, 2008.
The Company also sells power on a wholesale basis to ELF, which distributes
electricity to the city of Oruro and surrounding areas. On January 10, 1996, the
then Government regulatory board, Direccion Nacional de Electricidad, granted
ELF a 40-year concession for the distribution of electricity in the City of
Oruro. On February 26, 1996 the Company
7
<PAGE>
and ELF entered into a long-term Electricity Supply Contract on terms
substantially similar to the Electricity Supply Contract between the Company and
ELECTROPAZ.
SALE OF DISTRIBUTION SUBSIDIARIES
In order to comply with the new Electricity Law, on December 15, 1995 the
Company entered into a Stock Purchase Agreement (the "Agreement") with lberdrola
Investimentos Sociedade Unipessoal L.D.A., a Portuguese company ("Iberdrola"),
which is a subsidiary of lberdrola S.A., a Spanish electric utility, providing
for the sale to lberdrola of three of the Company's subsidiaries - ELECTROPAZ,
ELF and CADE - for an aggregate cash price of $65.3 million (the "Purchase
Price"). The closing of the Agreement was held on January 11, 1996.
On the closing date, lberdrola paid to the Company $57.5 million in cash and
deposited $7.8 million in a escrow account pending the satisfaction of certain
conditions. Of the $7.8 million deposited in escrow, $6 million and $1.4 million
respectively were released to the Company in February and July 1996. The
remaining $0.4 million will be released to the Company upon resolution of
certain outstanding issues.
In accordance with the Agreement an adjustment of $513,000 subsequently was
agreed to between the Company and lberdrola to reflect changes in the book value
of ELECTROPAZ and ELF, resulting in an increase in the Purchase Price from $65.3
million to $65.8 million.
EXPANSION AND MODERNIZATION PROJECTS
Under the terms of the Concession, the Company is obligated to expand its
hydroelectric generating capacity in the Zongo Valley. This expansion consists
of adding generation facilities, modernizing existing facilities and
constructing transmission lines to transmit the increased generation capacity as
required by the Concession (the "Zongo Project"). The Zongo Project is expected
to add 65.6 MW to the Company's generating capacity, and is expected to be
completed in early 1999. Under the terms of the Concession, the Company has the
right to expand its facilities in the Miguillas Basin (the "Miguillas
Expansion") which, if completed, would add over 200 MW of generation capacity.
In accordance with its obligations under the Concession, in late 1995 the
Company presented to the Government a technical-economic feasibility study for
the Miguillas Expansion. The Company is reviewing this study and it anticipates
that in 1997 or early 1998 it will make a decision as to whether or not it
should proceed with the Miguillas Expansion.
FINANCING EXPANSION AND MODERNIZATION PROJECTS
Based on revised and updated projections, which include the settlement of
certain claims from contractors and the redesign of civil works, the Company
estimates that from 1997 through 1999 approximately $76 million will be required
for construction of the Zongo Project and the Company's regular capital
expenditure program. The Company estimates that during the next three years it
will be required to spend approximately $58 million to complete the Zongo
Project generation facilities, $12 million to complete the Zongo Project
transmission facilities, and approximately $6 million on its regular capital
8
<PAGE>
expenditure program. The total cost of the Zongo Project, including expenditures
through September 30, 1997 of $64.6 million, is estimated to be $109 million
($93 million for generation facilities and $16 million for transmission
facilities). The Company intends to fund the Zongo Project and its regular
capital expenditure program with borrowings from financial institutions or
possible equity financings, equipment financing, the proceeds it received from
the sale of ELECTROPAZ, ELF and CADE, and from internal cash generation. On
August 13, 1997 the Company entered into a credit agreement (the "Credit
Agreement") with Corporation Andina de Fomento ("CAF") providing for borrowings
of up to $75 million for the construction of the Zongo Project. The Credit
Agreement, among other things, contains restrictions on dividends and requires
the Company to maintain certain financial ratios. See Part II, Item 2 - "Changes
in Securities." During 1996 and the first nine months of 1997, the Company
expended $25.5 million and $25.9 million, respectively, on the Zongo Project.
The capital requirements discussed above do not include possible funding
requirements of the Miguillas Expansion referred to above.
RATE SETTING
The Company's revenue and expenses are affected by the rate setting process
which is conducted by the Superintendency of Electricity.
For a period of seven years from and after December 21, 1994 when the new
Electricity Law was enacted, the Company's rates will be set in accordance with
the provisions of the old Electricity Code. Thereafter, for a period of seven
years, the Company will be entitled to the 9% rate of return provided under the
old Electricity Code or, at its option, to the marginal cost pricing system
established by the new Electricity Law. From and after 14 years, the Company
shall be subject to the marginal cost pricing system under the new Electricity
Law. The new Electricity Law provides that rates will be determined on an
unregulated, competitive marginal cost basis, similar to Argentina, Chile and
the United Kingdom, rather than the present regulated rate of return basis.
The old Electricity Code provides that the Company will be granted rates
sufficient to provide an annual return of 9% on its Rate Base (approximately the
depreciated book value of the Company's utility, plant and equipment plus an
allowance for materials not exceeding 3% of tangible assets and an allowance for
working capital of 12.5% of gross revenue) and provides for the adjustment of
rates to compensate the Company for any shortfall or to recapture any excess in
the Company's actual rate of return during the previous year in subsequent rate
adjustments.
Until the Company's distribution activities were divested in January 1996, the
Company applied for periodic adjustment in its distribution rates in order to
provide for an annual return of 9% on its Rate Base. In December 1995, when it
was apparent that the Company would no longer be engaged in the distribution of
electricity, the Company applied for new generation rates and in February 1996
the Superintendency of Electricity granted this request, effective retroactively
to January 1, 1996, with the understanding that the Company could subsequently
apply for an adjustment to its generation rates sufficient to provide the
permitted 9% annual rate of return on its Rate Base. Accordingly, in April 1996,
the Company applied to the Superintendency of Electricity
9
<PAGE>
for a 22.5% increase in the generation rates which had been approved in February
1996. In July 1996, the Superintendency of Electricity advised the Company that
certain of its claimed expenses had been disallowed and that the Company would
not be granted any further rate increases in 1996. With a view to establishing
the criteria which will govern the Company's future requests for rate
adjustments, on October 30, 1996 the Company presented to the Superintendency of
Electricity the Company's analysis of what likely will be the required rate
adjustments during the period 1996 through 2001.
On February 5, 1997, the Superintendency of Electricity issued a Resolution
granting the Company an 18.2% rate increase as from February 1, 1997, 21.3% in
1999 and 19.5% in 2000. The Resolution also provides for annual reviews in order
to correct any shortfall or excess in the Company's actual rate of return during
the period 1997 through 2001. Pursuant to such annual reviews, on October 31,
1997 the Company presented to the Superintendency of Electricity a rate study
for the period 1998 through 2002. The Company, at this time, cannot predict the
outcome or the results of the review to be performed by the Superintendency.
The Company's rates are indexed to the U.S. dollar so that they are
automatically adjusted on a monthly basis to reflect changes in the exchange
rate between the Boliviano and the U.S. dollar, thereby mitigating the effect of
fluctuations in the exchange rate. The Company is also entitled to include in
its rates an amount equal to the excess of the rate of interest paid over 6% on
any financing approved by the regulatory authority.
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 as compared to
Nine months ended September 30, 1996
Sales in the nine months of 1997 were 610,346 MWh, a reduction of 1.3% when
compared to MWh sales in the first nine months of 1996. This reduction is
partially due to the fact that in the first six months of 1996 the Company was
still engaged in the distribution activity in the Company's former Oruro
division, providing service principally to certain mining customers and towns.
MWh sales to these retail consumers totaled 28,658 MWh in the first six months
of 1996. The MWh sales reduction is however, partially offset by an overall
increase in 1997 of approximately 3.4% in MWh sales to its two major customers,
ELECTROPAZ and ELF. This sales increase is due to increased generation because
of an unexpectedly high level of water availability in the first five months of
1997.
Operating revenue - excluding revenue derived from sales to retail customers in
the Oruro division in 1996 - increased by 17% in 1997 when compared to 1996.
This increase is principally due to the rate increase granted to the Company in
February 1997.
Operating expenses in the first nine months of 1997 decreased by 23% from 1996
principally due to the fact that the Company no longer purchases bulk power to
supply retail customers in the Oruro Division. As from July 1, 1996 the Company
transferred its customers in the Oruro Division to its former subsidiary ELF,
and therefore discontinued its purchases of bulk power in the Oruro Division. In
1996 the cost of power purchased amounted to $1,516,000. In addition, in the
first nine months of 1996 the Company
10
<PAGE>
charged $2,105,000 to income in relation to stock options compensation to
certain officers of the Company (see note 4 above in Notes to Interim
Consolidated Financial Statements). This charge is a non-recurring expense as in
December 1996 the agreement for the granting of stock options to such officers
was terminated.
Interest capitalized during construction increased in 1997 due to the continuous
increase of the balance of work in progress. Interest is currently being
capitalized and allocated to work in progress at rates permitted in the Bolivian
Electricity Code.
Interest income decreased in 1997 as the balance of temporary investments
decreased principally due to expenditure for the Zongo expansion, a special
dividend declared in January 1997 and other extraordinary expenses which were
incurred in the last quarter of 1996.
The Company's statutory income tax rate is 34.375% which is comprised of an
income tax rate of 25% relating to the Bolivian branch profits and a 12.5%
withholding tax relating to net branch profits after the 25% income tax. The tax
charge for 1996 includes a charge of $2,895,000 on the profit arising from the
sale of the Company's distribution subsidiaries. The effective tax rate of 27.6%
in the first nine months of 1997 differs from the abovementioned statutory rate
because the Company has income and expenses outside Bolivia which are not
subject to or deductible against Bolivian taxes.
Net income in the first nine months of 1997 was $4,838,000 or $1.15 per common
share compared to net income of $15,931,000 or $3.79 per common share for 1996.
Net income for the first nine months of 1996 includes a gain of $13,489,000 (net
of income tax amounting to $2,895,000), or $3.21 per common share, relating to
the gain arising from the sale of the Company's distribution subsidiaries in
January 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THREE MONTHS ENDED
- -----------------------------------------------------------------------
SEPTEMBER 30, 1996
- ------------------
Sales in the third quarter of 1997 were 150,104 MWh, as compared to sales of
149,820 MWh in the third quarter of 1996. Operating revenue increased by 16.8%
in 1997 when compared to 1996. This increase is principally due to the rate
increase which was granted to the Company in February 1997.
Operating expenses in the third quarter of 1997 decreased by 28.4% from 1996
principally due to the fact that in the third quarter of 1996 the Company
charged $1,372,000 to income in relation to stock options compensation to
certain officers of the Company (see note 4 above in Notes to Interim
Consolidated Financial Statements).
Interest capitalized during construction increased in the third quarter of 1997
due to the continuous increase of the balance of work in progress relating to
the Zongo expansion. Interest is currently being capitalized and allocated to
work in progress at rates permitted in the Bolivian Electricity Code.
Interest income decreased in the third quarter of 1997 as the balance of
temporary investments decreased principally due to expenditure for the Zongo
expansion, a special
11
<PAGE>
dividend declared in January 1997 and other extraordinary expenses which were
incurred in the last quarter of 1996.
The Company's statutory income tax rate is 34.375% which is comprised of an
income tax rate of 25% relating to the Bolivian branch profits and a 12.5%
withholding tax relating to net branch profits after the 25% income tax. The
effective tax rate of 24.7% in the second quarter of 1997 differs from the
abovementioned statutory rate because the Company has income and expenses
outside Bolivia which are not subject to or deductible against Bolivian taxes.
Net income in the third quarter of 1997 was $1,265,000 or $.30 per common share
compared to a net loss of $453,000 or $.11 per common share for 1996.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1997 and 1996, the Company incurred capital
expenditures of $25,400,000 and $15,762,000 respectively. These expenditures
related primarily to contracts for purchase of equipment and civil works related
to the Zongo Project and to routine replacement and upgrading of equipment and
existing facilities. The Company funded these expenditures from internally
generated funds and from proceeds received from the sale of its distribution
subsidiaries, as explained below.
At September 30, 1997 the Company had purchase commitments with suppliers for
the purchase of equipment for the Zongo Project and its routine capital
expenditure amounting to approximately $7 million. The Company has sufficient
liquid assets to meet its purchase commitments as well as its other current
operating obligations and to perform necessary maintenance of its facilities.
In January 1996, the Company received $57.5 million of the aggregate purchase
price of $65.3 million for the Company's three subsidiaries, ELECTROPAZ, ELF and
CADE. See "Sale of Distribution Subsidiaries" above. The balance of the purchase
price, $7.8 million, was deposited in an escrow account pending the satisfaction
of certain conditions. In February and July 1996, $6 million and $1.4 million of
the amount deposited in escrow was released to the Company. Subsequently, the
Company and Iberdrola agreed to an additional $513,000 as an adjustment to the
purchase price which was paid to the Company in December 1996.
The Company estimates that from 1997 through 1999 approximately $76 million will
be required for construction of the Zongo Project and the Company's regular
capital expenditure program. The Company estimates that during the next three
years it will be required to spend approximately $58 million to complete the
Zongo Project generation facilities, $12 million to complete the Zongo Project
transmission facilities and approximately $6 million on its regular capital
expenditure program. The total cost of the Zongo Project, including expenditures
through September 30, 1997 of $64.6 million, is estimated to be $109 million
($93 million for generation facilities and $16 million for transmission
facilities).
The Company intends to fund the Zongo Project and its regular capital
expenditure program with borrowings from financial institutions or possible
equity financings,
12
<PAGE>
equipment financing, the proceeds it received from the sale of ELECTROPAZ, ELF
and CADE, and from internal cash generation. On August 13, 1997 the Company
entered into a Credit Agreement with CAF providing for borrowings of up to $75
million for the construction of the Zongo Project. The Credit Agreement, among
other things, contains restrictions on dividends and requires the Company to
maintain certain financial ratios. See Part II, Item 2 - "Changes in
Securities".
On September 1, 1997 the Company paid $1,323,357 to CAF which constituted the
first installment of the repayment of principal under the loan for the
installation of the gas turbine in El Kenko.
EFFECT OF INFLATION
Bolivia has suffered in the past from hyperinflation. However, since 1987 the
Bolivian government has been successful in containing inflation and, therefore,
the Company believes that inflation will not have a material adverse effect on
results of operations in the near future. The inflation rate was 7.6% in 1996
and 3.05% in the first nine months of 1997. The effect of inflation and currency
devaluation on the Company's results is mitigated by indexing the Company's
rates to the U.S. dollar so that the Company's rates are automatically adjusted
on a monthly basis to reflect changes in the exchange rate between the Bolivian
currency and the U.S. dollar.
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities
- ------ ---------------------
On August 13, 1997 the Company entered into a Credit Agreement with CAF,
pursuant to which the Company may borrow from CAF, subject to the terms and
conditions set forth therein, up to an aggregate principal amount of seventy-
five million United States dollars (the "Loan"). Under the Credit Agreement, the
Company is prohibited from declaring or paying any dividend or making any
distribution on its share capital, or purchasing, redeeming or otherwise
acquiring any shares of capital stock of the Company or any option over the
same, unless either (A) it is a special dividend (a "Special Dividend") declared
by the Company's board of directors and paid by the Company in 1997 and after
August 13, 1997 at such time as no Event of Default (as defined in the Credit
Agreement) shall have occurred and be continuing, in an amount not in excess of
$35,000,000 or (B) (i) immediately prior to declaring and paying such dividend
or distribution the Company is in compliance with all material obligations under
the Loan Documents (as defined in the Credit Agreement), (ii) after making such
payment or distribution, the Company is in compliance with certain financial
ratios described below, (iii) the Debt Service Coverage Ratio (as defined in the
Credit Agreement) for the four fiscal quarters most recently ended is not less
than 1.25/1 and (iv) a Default (as defined in the Credit Agreement) or Event of
Default has not occurred and is not continuing; provided that the Company may,
at any time that no Default or Event of Default has occurred and is continuing,
declare or pay dividends to the extent of the Unrestricted Dividend Balance (as
defined in the Credit Agreement).
The Credit Agreement imposes on the Company the following obligations, among
others: (1) not to allow the Leverage Ratio (as defined in the Credit Agreement)
to exceed
13
<PAGE>
0.60/1; (2) to maintain a Tangible Net Worth (as defined in the Credit
Agreement) of at least $65,000,000 or, except as may result from payment of the
Special Dividend, allow a cumulative reduction of Tangible Net Worth (as defined
in the Credit Agreement) in excess of 15% over any period of four consecutive
fiscal quarters; (3) to maintain a Current Ratio (as defined in the Credit
Agreement) of at least 1.00/1; and (4) not to allow the Collateral Value Ratio
(as defined in the Credit Agreement) to fall below 1.25/1 at any time.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) No exhibit is filed with this report.
(b) The Company filed a report on Form 8-K dated August 13, 1997 to
report under Item 2 that the Company entered into a Credit Agreement
with CAF.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Compania Bolivian de Energia
E1ectricia S.A. - Bolivian
Power Company Limited
--------------------------------------------------
/s/ ROLAND C. GIBSON
--------------------------------------------------
ROLAND C. GIBSON
Vice President - Finance
Authorized Signatory
DATE: November 13, 1997
15
